In thematic investing, sustainability is now a common term prompting questions. BNP Paribas Asset Management notes that the growing range of green products raises uncertainty and scepticism among investors.
“Investors are torn over whether E (environmental), S (social) and G (governance) labelled products are a mechanism to authentically align portfolios with principles or merely a greenwashing gimmick…,” writes Ulrik Fugmann, Co-Head and Senior PM of Environmental Strategies Group at BNP Paribas.
Confronted with this situation, Fugmann explores the reasons investors should prioritise the environmental investment theme. He highlights that 70% of investors plan to intensify their focus on thematic investments in the next three years, with energy transition and climate solutions topping their priorities.
Additionally, BNP Paribas explores the challenges associated with ESG-labelled products. It criticises the broader application of ESG scores to industries and companies, highlighting the potential for greenwashing.
“The ESG label has become widely associated with a belief that these products offer a greater sense of social and environmental responsibility for investors, but not all ESG-labelled products explicitly target such aims,” informs Edward Lees, Co-Head and Senior PM of the Environmental Strategies Group.
Furthermore, he addresses the advantages of taking an environmental thematic approach. Lee emphasises the need for portfolios to look beyond low-carbon assets and directly target industries pivotal to the energy transition.
Besides, BNP Paribas acknowledges the potential risks associated with thematic investing, particularly in the face of macroeconomic and geopolitical forces. However, the asset manager argues that a robust thematic approach, backed by deep sector knowledge, can mitigate inherent risks, and capture alpha opportunities.
BNP Paribas asserts that an environmental thematic approach can deliver on the promise of creating a positive impact on the planet while providing meaningful growth opportunities for investors.
“The financial sector is in a critical position to help make the world a better place, the global economy more sustainable and inclusive, while also delivering value to its clients,” concludes the asset manager.
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